Ditched Ameriprise, she got a new job, critique my Asset Allocation (updated)

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greenwood
Posts: 3
Joined: Fri Dec 01, 2017 6:16 pm

Ditched Ameriprise, she got a new job, critique my Asset Allocation (updated)

Post by greenwood » Fri Jan 12, 2018 12:17 am

I'm very happy to have found this site and have spent the last month or so reading posts very similar to this one. So thanks in advance for your help!

[Skip to post #2 if you want to see my proposed allocation]

Personal Info:

Age: Him 36, Her 42, No kids and no plans for any.
Employment: Stable
Contingency fund: 3 months dedicated, plus another month or more in “high”-interest savings accts any given time.
Debt: Mortgage, which was refinanced down to 30y@3.75% mid-2017. Car loan with $7500 remaining at @ 0.9%
Insurance: Term life that would pay off the mortgage plus a little more. Long Term Disability through work.
Tax Filing Status: MFJ
Tax Rate: 22% Federal
State of Residence: WA
Net Worth: Total Net Worth is Mid-high 6 figures. 55% Retirement accounts, 40% home equity (thanks Seattle boom!)
Desired Bond allocation: 20%
Desired International stock allocation: 20% of total stock

Current Retirement Assets:

(No Taxable)

His 401k (Fidelity): 55.4% of total
VANG 500 INDEX ADM  (VFIAX) 36.0%
VANG TOT BD MKT ADM  (VBTLX) 10.4%
VANG DEV MKT IDX ADM  (VTMGX) 8.9%
Small plan (~70 participants) with annual 0.22% Bookkeeping and 0.15% “Advisory” fees, paid quarterly. A very small portion (1%) is in Roth 401k, explained later.

Her new 401k (T. Rowe Price): No balance
She just started this job and contributions aren't allowed until mid-February.

Her 401k (Fidelity): 34.2% of total
VANGUARD TARGET 2035 (VTTHX) 34.2%
She just left this employer and can keep money here with no fees per Fidelity rep. A small portion (6%) is in Roth 401k, explained later.

Her Roth IRA (Vanguard) 3.5% of total
VANGUARD TARGET 2035 (VTTHX) 3.5%
Both of her Vanguard IRAs are recent transfers away from Ameriprise, thanks to this site.

Her Trad. IRA (Vanguard) 7.0% of total
VANGUARD TARGET 2035 (VTTHX) 7.0%

New Annual Retirement Contributions /Savings:

We have worked up to contributing 20% as our salaries have increased and feel we are near our comfort limit (HCOL area). We plan to fund Roth IRAs (via Backdoor if necessary) as 20% becomes greater than 401k contribution limits. Our goal this year is getting serious about budgeting and see if we feel differently once our spending is being tracked more closely.

At some point our former Ameriprise guy suggested contributing to her Roth 401k at 5% (leaving 15% to traditional). When his 401k gained a Roth option, we did the same without thinking about it much. In hindsight this seems silly—we are just now reaching the contribution limits and could be deferring more tax. So, we’re planning on the following levels for 2018:

His Fidelity 401k: 20% pre-tax (will max out in December edit: more explicitly, he is maxing out is 401k for 2018 by contributing at that level), 4% matching
Her T. Rowe Price 401k: 20% pre-tax (will max out in December edit: same as above), 6% matching

Mortgage Prepay: We have refinanced twice since purchasing our house in 2008, dropping our rate 1% each time (in addition to dropping PMI). Through this we have kept our payment at the original 2008 level, with the difference applied to principal. The result is as of the last refi we are sending roughly 5% of our gross income to extra principal payments.

Questions:
  1. I’m looking for help with AA. I’m comfortable with the idea of doing my own re-balancing across accounts, but need a plan. Currently his 401k is in a three-fund, and all of her accounts are using the Vanguard targeted that happens to be 20% bonds right now (conveniently she gets Vanguard Target Funds at .08% in her old 401k).
  2. It seems like we should be prioritizing maxing out Roth IRAs over mortgage prepayment, even with the new tax bill. Is that right? I know that there have been plenty of threads on taxable vs mortgage, but we aren't maxing out tax-advantaged yet.
  3. The Fidelity 401ks: both have a Roth component that is visible on the portal in “sources” but it doesn’t appear that this can be accessed directly during rebalancing—the Roth is always just a portion of the whole 401k, with identical AA—does anyone have information counter to that?
Available Funds with low-ish ER:

His 401k (Fidelity): 55.4% of total

Code: Select all

VANG 500 INDEX ADM (VFIAX)      Large Cap   0.04%
VANG TOT BD MKT ADM (VBTLX)     Income      0.05%
VANG MIDCAP IDX ADM (VIMAX)     Mid-Cap     0.06%
VANG SM CAP IDX ADM (VSMAX)     Small Cap   0.06%
VANG SMCP GR IDX ADM (VSGAX)    Small Cap   0.07%
VANG DEV MKT IDX ADM (VTMGX)    Int'l       0.07%
VANG REIT INDEX ADM (VGSLX)     Specialty   0.12%
DFA INF PRT SEC PORT (DIPSX)    N/A         0.12%
VANG TARGET RET INC (VTINX)     N/A         0.13%
VANG TARGET RET 2015 (VTXVX)    N/A         0.14%
—Targeted Funds thru—
VANG TARGET RET 2060 (VTTSX)    N/A         0.16%
VANG FTSE SOCIAL IDX (VFTSX)    Large Cap   0.22%
Her old 401k (Fidelity): 34.2% of total

Code: Select all

FID 500 INDEX IPR (FXAIX)   Large Cap       0.015%
FID US BOND IDX IS (FXSTX)  Income          0.035%
FID EXT MKT IDX PR (FSEVX)  Mid-Cap         0.07%
VANGUARD TARGET 2015        N/A             0.08%
—Targeted Funds thru—
VANGUARD TARGET 2065        N/A             0.08%
VANGUARD TARGET INC         N/A             0.08%
FID GLB XUS IDX PR (FSGDX)  International   0.10%
MIP II CL 3                 Stable Value    0.32%
Her new 401k (T. Rowe Price): No balance yet

Code: Select all

Vanguard 500 Index Admiral	Large Blend		0.04%
Vanguard Ext Market Index Inst	Mid-Cap Blend		0.06%
iShares MSCI Ttl Intl Index K 	Foreign Large Blend	0.14%
...plus Vanguard funds for her two IRAs (which could meet Admiral Shares minimums if not sliced up too much).
Last edited by greenwood on Sat Jan 13, 2018 5:05 pm, edited 2 times in total.

greenwood
Posts: 3
Joined: Fri Dec 01, 2017 6:16 pm

Re: Ditched Ameriprise, she got a new job, now need an AA plan

Post by greenwood » Fri Jan 12, 2018 7:33 pm

I think I timed or crafted my first post poorly, but the lack of immediate response has given me time to come up with the following, which I would love some feedback on:

With no access to total US or international funds in our larger accounts, I am approximating them with combinations of 500 and extended market indexes (US) and developed and emerging markets (international). I used the extended market and emerging markets funds to "anchor" the allocation because of their limited availability to us. Here's the result in individual holdings, grouped by account:

Code: Select all

         Account                       Fund                % of account   % of total  
 ----------------------- -------------------------------- -------------- ------------ 
  Her 401k Fidelity       Fidelity 500 Index Inst. Prem.   64%            21.9%       
  Her 401k Fidelity       Fidelity Ext. Mkt Prem.          36%            12.3%       
                                                                  
  His 401k Fidelity       Vang 500 Adm.                    54%            29.9%       
  His 401k Fidelity       Vang. Total Bond Adm.            36%            19.9%       
  His 401k Fidelity       Vang. Developed Mkt. Adm.        10%            5.5%        
                                                                  
  Her Trad IRA Vanguard   Vang. Developed Mkt. Adm.        90%            6.3%        
  Her Trad IRA Vanguard   Vang. Emerging Mkt. Adm.         10%            0.7%        
                                                                   
  Her Roth IRA Vanguard   Vang. Emerging Mkt. Adm.         75%            2.6%        
  Her Roth IRA Vanguard   Vang. Developed Mkt. Adm.        25%            0.9%  
And here are totals for each fund category, which puts us pretty much exactly at our desired AA (20% bonds, 20% of equities in international):

Code: Select all

 (Sub) Category    Proposed %  
 ----------------- ------------ 
  500 Index         51.8%       
  Extended Market   12.3%       
  Developed Intl    12.7%       
  Emerging Intl     3.3%        
  Total Bond        19.9%   
Finally, here's how we would set up 401k contributions across two accounts for 2018:

Code: Select all

  (Sub) Category       His Fidelity   Her TRP   Total  
 ----------------- -------------- --------- ------- 
  S&P 500           26%            76%       52.1%  
  US Extended Mkt   0%             24%       12.5%  
  Developed Mkts    33%            0%        15.8%  
  Total Bond        41%            0%        19.6%  
If necessary we can rebalance emerging markets (not available in our 401ks) with Roth contributions.

I know the above is kind of a wall of text, but it seems like in reading other threads that folks appreciate more detail. I hope I haven't overdone it.

ICMoney
Posts: 138
Joined: Fri Oct 28, 2016 2:38 pm

Re: Ditched Ameriprise, she got a new job, critique my Asset Allocation (updated)

Post by ICMoney » Sat Jan 13, 2018 4:22 pm

greenwood wrote:
Fri Jan 12, 2018 12:17 am
...
Insurance: Term life that would pay off the mortgage plus a little more. Long Term Disability through work.
Tax Filing Status: MFJ
Tax Rate: 22% Federal
...
His Fidelity 401k: 20% pre-tax (will max out in December), 4% matching
Her T. Rowe Price 401k: 20% pre-tax (will max out in December), 6% matching

Questions:
  1. I’m looking for help with AA. I’m comfortable with the idea of doing my own re-balancing across accounts, but need a plan. Currently his 401k is in a three-fund, and all of her accounts are using the Vanguard targeted that happens to be 20% bonds right now (conveniently she gets Vanguard Target Funds at .08% in her old 401k).
  2. It seems like we should be prioritizing maxing out Roth IRAs over mortgage prepayment, even with the new tax bill. Is that right? I know that there have been plenty of threads on taxable vs mortgage, but we aren't maxing out tax-advantaged yet.
  3. The Fidelity 401ks: both have a Roth component that is visible on the portal in “sources” but it doesn’t appear that this can be accessed directly during rebalancing—the Roth is always just a portion of the whole 401k, with identical AA—does anyone have information counter to that?
...
Welcome and congratulations on recently taking back control of your finances! Hoping this reply will bump your thread as I don't have answers to all of your questions, but a few thoughts:

1. Since you're in the 22% tax bracket, could you instead of prepaying the mortgage max out your traditional 401ks to save on your taxes? You are prepaying the mortgage with after-tax dollars, but could be deferring more taxes if those same dollars instead allowed you to max your traditional 401k instead.

2. Hoping someone with more thorough knowledge will chime in, but my 401k is the same where you can't split out Roth 401k separately from the traditional 401k when rebalancing. Not sure if that is just common practice, or a required setup. (maybe you can search the forum on this)

3. Is your and your spouse's long-term disability through work have a definition of disability of own-occupation? Typically workplace LTD is own-occupation only for a year or two, and then switches to any-occupation. This means if you are an engineer now (fill in your current profession), if you had a disability where you couldn't be an engineer anymore, but could still be a greeter at Walmart, the workplace policy wouldn't pay you out when the definition switched to any occupation (ie wouldn't pay out after 1-2 years). This is typically what keeps workplace policies cheap. An own occupation policy would continue paying though as long as you couldn't be an engineer. Guardian is the best regarded disability insurance company on this forum if you want to look into it. I think these commonly cost 2-4% of annual salary (more expensive because it will pay out in more cases).

Will let some of the asset allocation experts opine, but nothing glaring stood out to me (though I am no expert...).

Best,
ICM

greenwood
Posts: 3
Joined: Fri Dec 01, 2017 6:16 pm

Re: Ditched Ameriprise, she got a new job, critique my Asset Allocation (updated)

Post by greenwood » Sat Jan 13, 2018 5:03 pm

ICMoney wrote:
Sat Jan 13, 2018 4:22 pm

Welcome and congratulations on recently taking back control of your finances! Hoping this reply will bump your thread as I don't have answers to all of your questions, but a few thoughts:

1. Since you're in the 22% tax bracket, could you instead of prepaying the mortgage max out your traditional 401ks to save on your taxes? You are prepaying the mortgage with after-tax dollars, but could be deferring more taxes if those same dollars instead allowed you to max your traditional 401k instead.
Thank you very much! I worded the 401k stuff clumsily—20% contributions will hit the $18,500 limit some time in December (ie we’re already maxing).
3. Is your and your spouse's long-term disability through work have a definition of disability of own-occupation? Typically workplace LTD is own-occupation only for a year or two, and then switches to any-occupation. This means if you are an engineer now (fill in your current profession), if you had a disability where you couldn't be an engineer anymore, but could still be a greeter at Walmart, the workplace policy wouldn't pay you out when the definition switched to any occupation (ie wouldn't pay out after 1-2 years). This is typically what keeps workplace policies cheap. An own occupation policy would continue paying though as long as you couldn't be an engineer. Guardian is the best regarded disability insurance company on this forum if you want to look into it. I think these commonly cost 2-4% of annual salary (more expensive because it will pay out in more cases).
I was completely unaware of this distinction! I will read up and make sure we insured appropriately.

ICMoney
Posts: 138
Joined: Fri Oct 28, 2016 2:38 pm

Re: Ditched Ameriprise, she got a new job, critique my Asset Allocation (updated)

Post by ICMoney » Mon Jan 15, 2018 9:52 am

greenwood wrote:
Sat Jan 13, 2018 5:03 pm
ICMoney wrote:
Sat Jan 13, 2018 4:22 pm

Welcome and congratulations on recently taking back control of your finances! Hoping this reply will bump your thread as I don't have answers to all of your questions, but a few thoughts:

1. Since you're in the 22% tax bracket, could you instead of prepaying the mortgage max out your traditional 401ks to save on your taxes? You are prepaying the mortgage with after-tax dollars, but could be deferring more taxes if those same dollars instead allowed you to max your traditional 401k instead.
Thank you very much! I worded the 401k stuff clumsily—20% contributions will hit the $18,500 limit some time in December (ie we’re already maxing).
That's great! The one other thing you might look into before a mortgage prepay is maxing out a HSA if you are enrolled in a high-deductible health plan (HDHP). You could still contribute to an HSA for the 2017 tax year (until April 16, 2018 I think) if you had HDHP last year - and you can also contribute to one for 2018 if you are enrolled in a HDHP for this year. Check out the wiki to read more on HSAs if you aren't familiar with them: https://www.bogleheads.org/wiki/Health_savings_account

Best,
ICM

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